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Andrea Theatres Inc. v. Theatre Confections Inc.

March 31, 1986


Appeal from an order of the Eastern District of New York, Thomas C. Platt, Judge, abstaining from exercise of jurisdiction over appellants' anti-trust action and dismissing the action without prejudice pending resolution of a related suit in New York state court. Appellee seeks to cross-appeal from the district court's failure to grant its motion to dismiss the complaint under Fed. R. Civ. P. 12(b)(6). The abstention order is reversed. Appellee's purported "cross-appeal" is dismissed.

Author: Mansfield

Before: MANSFIELD, MESKILL and PIERCE, Circuit Judges.

MANSFIELD, Circuit Judge.

Andrea Theatres and E.B. Cinema Corp (collectively referred to as "the Theaters"), two New York corporations controlled by the same principals, appeal from an order entered by Judge Thomas C. Platt of the Eastern District of New York dismissing without prejudice their complaint, which alleges that Theatre Confections, Inc. ("Confections") violated federal anti-trust laws, New York state anti-trust law, New York state usury laws and claims that Confections breached its contract with the Theaters. Confections cross-appeals from the district court's failure to dismiss the complaint with prejudice. Citing "the interests of judicial restraint and comity", the district court abstained from adjudicating the Theaters' claims pending the outcome of an ongoing suit in New York State Supreme Court between the same parties involving the same transactions. We reverse the abstention order and dismiss the "cross-appeal".

On September 26, 1979, Confections entered into a loan agreement with the Theaters and three other movie houses under the same ownership. In return for a loan of $300,000, the five Theaters agreed to an interest rate of 12% or 2-1/2% above the prime rate of a specified bank, whichever proved to be greater. The agreement provided Confections with several forms of collateral and security, including liens and personal guarantees of the Theaters' four principals.

The parties simultaneously entered into a "Concession Lease Agreement", which was to run until March 1987. Under the agreement the Theaters leased portions of their premises "specifically identified as concession areas" to Confections and gave Confections "exclusive possessory interest" over those locations. The contract provided that the leased premises "shall be used by [Confections] for the sole purpose of selling and/or distributing refreshments, tobacco, and novelty items" and that Confections "shall have the exclusive right to determine the hours of concession operation and the merchandise to be sold to the customers and patrons of the Theatres, as well as the exclusive right to alter and/or determine the sizes and retail sales prices of such merchandise . . ." The five Theaters agreed to staff the concessions and to collect sales revenues from their operation. In return, Confections agreed to pay the five Theaters 50% of the sales price of all refreshments and novelty items sold.*fn1

The loan agreement was expressly conditioned upon the Theaters' performance of the concession agreement. It required that the Theaters comply fully with the concession lease and specified that any breach of the concession agreement by the Theaters would be an event of default under the loan agreement. The concession agreement permitted Confections to extend its duration until the Theaters satisfied their obligations under the loan contract.

In June 1984 Confections commenced an action against the Theaters in New York State Supreme Court,*fn2 alleging that the Theaters had breached the concession lease agreement by refusing to make payments required under the contract and refusing to permit Confections to staff and operate the concessions. The complaint seeks injunctive relief and an accounting. In an amended answer, the Theaters denied the allegations and raised state law affirmative defenses and counterclaims.

In December 1984, before further action was taken in state court, the Theaters commenced this suit in federal court. The complaint alleges that Confections "is one of the leading leaders of monies in the Northeast and Northcentral states to the 'non-chain' movie theaters" and has "a substantial impact on interstate commerce in the conduct and operation of its businesses . . ." It claims that "as a tie-in to its money lending activities, Theatre Confections is also engaged in the business of selling refreshments, candy, tobacco and novelty items for movie theaters" and that the Theaters were "coerced" into accepting the concession lease agreement because they had "no alternative financial source".

Claims 1 and 2 of the federal complaint allege that these actions violated §§ 1 and 2 of the Sherman Antitrust Act, 15 U.S.C. §§ 1&2, and § 3 of the Clayton Antitrust Act, 15 U.S.C. § 14, because they constituted (a) an illegal tying arrangement, (b) an illegal exclusive dealing arrangement, (c) resale price maintenance and (d) were part of a scheme to monopolize the businesses of lending money to movie theater owners and of operating concessions in movie theaters in the Northeast and Northcentral states. The Theaters seek damages and declaratory relief based on these federal anti-trust claims. The violations of state law alleged in Claims 3 through 5 had also been asserted by the Theaters as affirmative defenses and counterclaims in the state court litigation.

In January 1985 the Theaters received permission to amend their answers and counterclaims in the state court action to add the federal anti-trust claims asserted in their federal action. Confections then moved in the state court for partial summary judgment, asserting that anti-trust defenses cannot be raised as defenses in a breach of contract action. In its moving papers, Confections urged the state court to refrain from resolving the merits of the anti-trust claims. It argued that the Theaters' "remedy, if any, for alleged violations of antitrust laws lies in the federal courts." The Theaters cross-moved for a stay of the state action pending resolution of the anti-trust claims by the federal courts. The state court has not yet ruled on these motions.

On February 4, 1985, Confections moved in the Eastern District of New York pursuant to Fed. R. Civ. P. 12(b)(6) for dismissal of the federal action or, in the alternative, for dismissal or stay of the federal action pending resolution of the state action. In a memorandum opinion dated September 23, 1985, the district court granted the alternative relief sought by Confections. The court noted that "the bulk of the dispute . . . relates to questions of State law" and it concluded that since any action it would take "might carry with it the implication that the learned Supreme Court Justice to whom the State Court proceeding has been assigned is not as qualified to decide whether the identical counterclaims and defenses should stand or be dismissed, comity dictates that no such action should be taken by us absent an express request therefor from another such judge in a prior action . . ." Accordingly, the court dismissed the action without prejudice to the Theaters' underlying claim and its right to return to the federal court "[i]n the event the State Court finds an antitrust violation." The district court therefore did not rule on Confections' motion for dismissal under Rule 12(b)(6) for failure to state a claim upon which relief could be granted.


Abstenti ...

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